Temer, who has been charged with corruption himself, issued the annual decree Friday, expanding the categories of prisoners eligible for early release.
The main shift was to lift the previous exclusion on all those serving sentences of more than 12 years. Under Temer's changes, the length of sentence no longer matters and a prisoner also needs only to have served 20 percent of the sentence to qualify, rather than 25 percent as under the previous rules.
"It's a Christmas party for the corrupt," lashed out Deltan Dallagnol, one of the chief prosecutors in operation "Car Wash," as the biggest anti-corruption probe in Brazilian history is known.
"Practice corruption with only 20 percent of the consequences," he said on Facebook.
Dallagnol referred to the case of construction tycoon Marcelo Odebrecht who was released this week into house arrest as part of a steep reduction of his sentence in exchange for providing devastating testimony to "Car Wash" investigators.
Originally, Odebrecht had been sentenced to more than 19 years in prison, but saw that cut to 10 years, with only two and a half behind bars and a transfer now to his luxury Sao Paulo house.
His testimony and that of fellow company executives was used to go after scores of politicians who allegedly took bribes.
Temer's decree will undermine prosecutors' bargaining power in such cases, Dallagnol said.
"If Marcelo Odebrecht could have seen this Christmas pardon from President Temer, he'd never have struck a plea bargain!" Dallagnol tweeted.
"Open season for corruption continues. They defraud bids. They embezzle from health, education and security! Come, steal, and head off!! That's the message."
Accused of corruption, Temer is the first sitting president to face criminal charges. Congress, where many members are also facing corruption probes, twice voted against putting him on trial.
Responding to the outcry, Justice Minister Torquato Jardim held a press conference in the capital Brasilia Saturday, telling journalists that Temer's expansion of the pardons was done for completely different reasons.
"The prisons are overcrowded. That is a reality we cannot ignore. Those who will be let out did not commit heinous crimes and are not considered serious threats," the Correio Braziliense newspaper quoted him as saying.